Oil Energy Thread (oih)

[madrose1]

While on the topic of oil the January crude contract closed just over $63.50 on Friday only two weeks ahead of the December 14th OPEC meeting. OPEC President, Edmund Daukoru, said another cut of -500,000 bpd is likely at the December meeting. He said I don't expect anything less than 500K. Actually another 500K cut would finally get them to the -1.2 mbpd they claimed to have cut on Nov-1st. According to a Reuters survey the actual cut was only -785,000 bpd and most of that in the less desirable high sulphur oil. Nobody is buying this product so let's cut it. 785,000 may sound like a lot but in reality OPEC production is only -300,000 bpd below last years production at this time. The demand decline is due primarily to price destruction from the spike to $3+ gasoline and a slowing US economy. With a +16% jump in November SUV sales that demand destruction appears to have ended. Energy Secretary Samuel Bodman said Friday there was no need for a cut and OPEC needed to keep the markets well supplied. At the same time Saudi's Oil Minister said the cartel needed to remove 100 million bbls from the market to restore balance. Remember, this balance they want to achieve appears to be oil over $60 despite comments to the contrary. Chavez, who is up for reelection this weekend, said on Thursday OPEC had reached a consensus to keep prices for the OPEC basket of crude above $50. That basket is currently selling for $56 with light sweet crude at $63. OPEC must be doing something right because Angola, Ecuador and Sudan are thinking about joining the cartel. Evidently belonging to OPEC is a status symbol for those without an economy.

I had a laugh on Friday when one astute commentator said OPEC was a sham for the gullible to allow Saudi Arabia to control the price of oil while appearing to be politically correct. In practice Saudi is the only OPEC country with any material surplus production and it has always fallen to Saudi to make the harsh moves when the situation demanded. Saudi nearly single handedly bankrupted Russia in the 1990s by flooding the market with oil at a time when Russia needed high prices to fund further development. Their tactics cost Russia 10 years before they could recover from that blow. Russia has significant amounts of oil but the lost decade prevented them from being able to use that oil to grab a larger share of the global market. Now 15 years later much of Russia's capacity has been used up and oil they could have used to fund development 15 years ago is needed to cover production from declining fields. In short Saudi stole their thunder at a time it would have mattered and Russia has never been able to regain that position.

NATO has warned Europe that Russia may be planning on forming an OPEC like cartel for natural gas and LNG. Russia's state owned entity Gazprom controls 25% of the world's supply of natural gas and wants to be the LNG exporter to the world. That is all we need another unfriendly world power selling us life giving supplies of natural gas that can be turned off in a heartbeat like they did to the Ukraine last year. It would be the equivalent of being a patient in ICU with OPEC responsible for our oil IV while GPEC led by Russia responsible for our oxygen/gas mask. You may be laughing but that is exactly where we are heading. Gas supplies in North America have already peaked so we cannot save ourselves.